Early retirement is something that many Australian Millennials dream of, but just how achievable is this vision?
Research from the recently published sixth annual Financial Health Barometer (FHB) report by RaboDirect showed that Gen Y-ers plan to retire at 60 – seven years younger than when baby boomers anticipate retiring. If you’re a Gen Y-er and plan to retire by 60, then the importance of having enough super can’t be overstated. Here’s what you need to know about having enough super for your retirement.
A different landscape
One of the realities of the new world economy is that millennials face a different economic landscape than their parents and older generations ever did. University debt and the high cost of living (such as housing, utilities, healthcare etc.) can make putting money aside seem unthinkable.
However, it's important to start saving for retirement as early as possible if you want to attain your goal of retiring at 60.
How much will you actually need when you retire?
The first thing you need to consider is the lifestyle you want during retirement. Do you want to take lots of holidays and travel the world? The amount you set aside will be the difference between two types of retirement:
- Comfortable: This includes a good standard of living with occasional trips overseas, eating out a few times a week, private health insurance and affording electronic equipment and good quality clothes.
- Modest: A basic standard of living with fewer extras like the ones described above.
Gen Y survey respondents from last year’s FHB believed that employer-funded superannuation would be enough to cover their needs. However, there is a significant disparity between how much respondents estimate needing to fund 20 years of retirement and how much they will actually have in superannuation savings.
The latest ASFA Retirement Standard estimated that single people will need $43,062 per year to have a comfortable retirement, while couples will need $59,160. For a modest retirement lifestyle, singles will need $23,767 and couples $34,216.
Keep in mind that you may want a lifestyle above the ASFA estimates. It’s also important to factor in any hidden costs like medical bills, relocation expenses and whether you’ll be assisting any family members.
And what about tax? If you retire before the age of 60, there may be some tax implications.
Tips to help you plan for retirement
- Having a long-term financial plan can help you achieve early retirement. After determining the lifestyle you want to lead, set a goal for your retirement savings. Consider how much you would spend in a year and add a little extra for unforeseen circumstances.
- Work out what your current savings and superannuation is, and factor in any debts (like mortgage payments). Figure out how your spending compares to your income, and make adjustments so you can start saving!
- Making voluntary contributions to your superannuation can also bridge the gap between how much you have now and what you’ll actually need. This calculator can help you plan and project savings.
The power of regular savings and a structured financial strategy
You’ve probably heard this before, but compounding interest is powerful – it means a $100 weekly deposit into your savings could grow into more than $1 million over a typical working lifetime.
The key is to get good advice, structure your savings correctly, and take steps where you can to reduce debt. Ensure you have enough to spend daily, but also set aside some for rainy days, so you reduce your reliance on credit cards in case of emergencies.
If you can, consider using a high-interest account to grow your savings. Seek professional advice when in doubt – a licensed financial planner can help you identify opportunities to invest strategically for retirement, according to your long term goals.
So, in summary...
It’s never too early to start saving for your golden years. Remember, the sooner you begin, the higher your chances of enjoying the early retirement you want.
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